Every Friday RE:INVENTION’s team reviews a recent news article or research study and provides analysis and insights from each of our cross-functional perspectives. We call this weekly blog feature, 5×5.

This week we’re discussing PwC’s 2013 16th Annual Global Innovation Survey, titled Breakthrough Innovation and Growth. RE:INVENTION partnered with PwC and Growthink Research back in 2004 to release our Venture Funding for Entrepreneurs Report, a report that was featured in BusinessWeek, INC, Entrepreneur, and hundreds of U.S. daily newspapers. The top finding from this new 2013 PxC report is that there is a clear correlation between innovation and growth. Ninety-three percent of the executives surveyed (1,700 senior level leaders across 25 countries and 30 sectors) indicate that organic growth through innovation will drive the greatest proportion of their future revenue growth. Only two percent of companies expect their growth to be mainly inorganic (i.e. M&A-driven). Innovators can expect significant rewards both financially and in terms of competitive positioning, according to the study.

THIS WEEK’S QUESTION

What can business leaders do to ensure they are enabling and not blocking innovation?

OUR TEAM’S RESPONSES

Kirsten Osolind (“Ms. Operations”)

Thriving, high performing organizations are founded on a culture of innovation. Their leaders define vision — they frame the way they want to change the world — then they encourage experimentation and a culture of play. They set small fires of positive change by…

Placing lots of little bets, then doubling down (advancing what works and what adds value).

Recognizing that there can be multiple “right” ways to innovate — that team members can have varying methods and processes for achieving a given common objective given the chance to develop and deliver ideas.

And they do these things every day so that they are ready to surf waves of opportunity. Ability to adapt and change is a force of possibility. Adaptive companies outperform companies with non-adaptive cultures by a factor of 900 to 1 as measured by long term net income and stock price growth. Adaptive cultures thrive, even when strategy fails. Taking small steps every day can achieve big goals and ensure continuous momentum.

In the words of Jeff Bezos, “if you can increase the number of experiments you try from a hundred to a thousand, you dramatically increase the number of innovations you produce.”

RE:INVENTION’s strategy site, Everyday Inventive, shares even more tips to help business leaders cultivate a culture of continuous innovation.

Of course, great execution is necessary to commercialize innovations. According to the PwC survey respondents, their greatest collective concern is whether they are executing their strategies and innovation operating models effectively to make innovation happen. Back in April, RE:INVENTION shared similar sentiments in a blog post titled, “The Biggest Hurdle to Innovation? Implementation.” Companies — and human beings — are instinctively good at generating ideas. Their greatest weakness? Execution. Implementation is hard and the pressure to execute flawlessly is increasing. If you want your company’s innovative initiatives to be implemented and executed successfully, you need to marshal resources toward their most productive uses with the aim of creating maximum value. And then get out of your team’s way. IDEAS have POTENTIAL; incredible EXECUTION is DISRUPTIVE.

That said…companies are as different as people -– no two are the same. “Best practices” don’t always transfer successfully from one company to another. It’s tempting to try to “copy” a company’s innovative culture and methods, but it’s a crappy idea. You simply can’t reverse engineer another company’s innovation processes or organizational culture playbook and expect the same results.

Joe Barrus (“The Technologist”)

This survey really helps solidify the theory that accelerating change will force companies to develop Cultures of Continuous Transformation in order to survive. The data heavily supports that real companies are taking heed and incorporating formal innovation practices into their operating models.

I think the most important lesson taken from this survey is that Innovation as a Formal Business Practice will become the norm. Companies can no longer allocate discretionary funds in a budget to Innovation; they must add Innovation as a clear line-item that is well funded and managed with best practices in order to achieve desired outcomes. And these outcomes need to be well integrated into a business strategic planning.

Clay Christensen, one of most respected thought leaders on innovation and the author of The Innovator’s Dilemma and The Innovator’s Solution and other books has a couple things to say on the topic that speaks directly to some of the results of this survey:

That M&A activities will necessarily become the primary method of growth for those companies who ARE UNABLE to adopt practices that drive change. This seems counter to the results of the survey that suggests that companies will reduce inorganic growth as a percentage of growth strategies. However, the primary distinction is that M&A will increase only for those companies who cannot adapt. I believe this will force these companies to necessarily modify their primary business models from value creators to holding companies. But, regardless, they cannot ignore the forces of change for long as those companies they acquire must also be able to adapt in order to be good investments.

Companies must decouple innovation as a business practice from traditional Profit & Loss financials. They will need their own resources, sales channels, P&L models, etc. Innovation as a practice cannot have the same shareholder constraints and expectations that are traditionally put on public companies. The criteria for success, profit and loss, etc. must be different as this area must be willing to take higher risks and fluctuating profit margins until these innovations become proven as viable revenue streams. Then they can be incorporated back into the primary financial model. But leaving them under the core financial model will put the wrong kind of pressure on these units that will actually suppress the chances for success.

So, in summary, as Christensen suggests and the survey supports, innovation as a practice needs to be treated in importance and funded just like any other primary business practice. And one way to ensure that this treatment is enforced is to decouple it from a company’s core financial and resource model to give it room to thrive.

In my experience as a digital marketer, leaders who have blocked innovation didn’t adhere to either of these. Without an established, easily understood strategy that takes the big picture into account, and a dedication to following that strategy for the long term, you’re firing blanks. Especially on social media, which some leaders think is passé (and therefore, don’t prioritize) but I feel has only scratched the surface of opportunity in the wake of IPOs for Facebook and Twitter.

These major players in the social space appear to be here to stay; too big to fail, if you will. But as we’ve seen over the history of the medium, the “next big thing” is always just around the corner. Will a company be ready to capitalize on it when it comes? Only if leadership is committed to a strategy that involves adaptive tactics, embraces the importance of social media to innovation, and empowers its colleagues to carry out that strategy for maximum benefit to the organization.

Jorge Barba (“The Culture Guy”)

In our current interconnected and transparent world, there are a few things that immediately signal that management is enabling innovation:

Strategy precedes innovation. There has to be a clearly understood strategy. Innovation follows strategy.

Shared definition is “what innovation is and what it looks like”. This one is important, because there is still debate as to what innovation is. Best thing you can do, is develop a shared definition what it means you and your organization, and finally, what it looks like. Clarity is an enabler by itself.

Open dialogue. Taking the previous point further, can anyone question current practices?

Clear focus on what and where to experiment. Let’s be honest, there is no innovation without experimentation. But, how focused are your experiments? Simply trying things to see what happens doesn’t equal the possibility of great outcomes, so a smarter approach is design experiments that are focused on accomplishing your stated objectives.

These are the basics, and are clear signals that you are enabling innovation in your organization.

Dennis Jarvis (“The Marketeer”)

In reflecting on the recent PwC report, Breakthrough Innovation and Growth, based on insights from 1,700 senior level executives across 25 countries and 30 sectors, my perspective is reinforced on the one hand and concerned on the other.

Yes, I would fully expect the most innovative companies to also be those projecting the most aggressive growth over the next five years – 62% vs. the average of 35%, and 21% for the least innovative companies. PWC also reports other innovation stats that support my faith in innovation being the fuel to growth such as: 79% of the most innovative companies indicate they have a coherent innovation strategy, vs. 47% for the least innovative companies; and 78% of the most innovative companies treat innovation like any other management process, vs. 66% for the least innovative companies. So, I should feel good about the companies embracing innovation, right?What concerns me is a single statistic reported by PWC: 32% of the most innovative companies innovate with business outcomes in mind, vs. 20% for the least innovative companies. So, the most innovative companies register this as a win in comparison to the least innovative companies. Think about it, slightly less than one-third of the leading innovators build innovation strategies with business outcomes in mind! What am I missing? In the world of baseball, a .320 average gets you into the Hall of Fame. In a world of fiduciary accountability and ROI mandates, doesn’t this seem like … well, a huge opportunity. Why should we feel good that only 32% of the best innovators bring business outcomes into innovation strategy?

Corporate leaders, whether with blue chip or start-ups, need to set a fiscal agenda for innovation; this is across all C-level positions but it needs to be supported at the very top of the C-food chain. It begins with a vision that is intuitively accessible by shareholders, employees and customers. And, that vision needs to incorporate the need to innovate for growth with a clear articulation of the business outcomes with innovation vs. without it. This will, in turn, lead to the development of the strategic plan, which will clearly identify the business upsides and downsides because of, or without innovation. With this comes the critical need to build the structure that establishes clear metrics for levels of success, as well as knocking down the obstacles impeding successful implementation of innovation strategies. Leaders also need to build into the vision and business strategy an allowance for failure. With failure, comes ultimate innovation success. A learning corporation should always build learning from its failures into what will drive ultimate innovation advancement — Thomas Edison a case in point (Forbes 2011).

The PWC report also notes that 93% of executives indicate innovation driven by organic growth will deliver the largest proportion of revenue gains, with 2% from inorganic (largely M&A), and 2% a blend of organic and inorganic. Why? If the companies’ innovation strategies were truly tied to business outcomes would this necessarily be the case? In building the vision and strategic plan, corporate leadership needs to ask fundamental questions about their business model and internal competencies. Companies may realize that the competencies they need to drive all innovation organically are laden with poor ROI, which may lead to the need to look externally for the competency.

So, while the PWC report gives me a great feeling about the importance of innovation to growth, we absolutely must ensure that sound business outcomes are built into the strategy.

THE FINAL WORD

So. What’s your take on PwC’s 2013 Innovation Study? What can leaders do to ensure they are enabling and not blocking innovation? We look forward to hearing your thoughts in comments below.